If you think that you might not be carrying a note for a portion of the purchase price…

1. All SBA lenders are requiring a minimum of 10% from sellers with interest-only for five years. Then the seller can get the balloon payment after five years. If a buyer has no experience in the industry but good management experience, they will require more down payment and most likely a larger noter from the seller to reduce the bank’s risk.

2. If the buyer uses other financing and does not ask for a note, they will most likely require a hold-back of at least 10% of the purchase price. This hold-back will be for up to 12 to 24 months in order for the buyers to have the reps and warranties guaranteed. If buyers find something that was misrepresented during that time, they have at least the hold-back amount to “offset”. The offset is not limited to the hold-back amount but protects the buyer for a period of time.